Gasification is the process of converting carbon-based materials such as biomass, coal,
petroleum coke, and waste into a "synthesis gas" that can then be used for a myriad of
applications including the production of liquid fuels, synthetic natural gas, electricity and
hydrogen. While the concept and practice of gasification is well-known and established, existing
gasification technologies have clear limitations in areas such as feedstock flexibility, capital
costs, and the ability to scale economically for industrial and distributed operations. HydroMax
is a breakthrough advanced gasification technology that leverages expertise and know-how from
the established molten-metals industry for the conversion of multiple carbon-based feedstocks to
a wide variety of energy products. In development since 2002, including several highly
successful demonstrations, the HydroMax intellectual property position is protected by 4 issued
patents including more than 240 claims of invention. Since licensing the HydroMax technology
in 2006, Diversified Energy has positioned HydroMax as a premier advanced gasification
approach as evidenced by three on-going commercial prototype demonstration projects with the
U.S. Department of Energy, the State of California, and the U.S. Department of Defense. While
multiple uses and applications (liquid fuels, electricity, hydrogen, etc.) exist for the technology,
Diversified Energy is targeting industrial natural gas users as the initial market entry strategy.
With more than 14,000 potential customers in this market segment, HydroMax offers a unique
and economical process heating solution to the industrial sector by providing a means to reduce
and stabilize energy costs for this critical U.S. economic pillar.

Technology Overview

Leveraging the fundamentals of molten-metal technology, the HydroMax process starts with a
reactor vessel containing a molten bath consisting of an iron/tin alloy and a high iron-oxide slag
heated to 1300°C with a pressure level between 1 and 3 atmospheres. Steam, carbon, and oxygen
are injected into the molten bath where two primary reactions occur to produce hydrogen and
carbon monoxide. As indicated in Figure 1, steam reacts with the pure iron to produce iron oxide
and hydrogen and carbon reacts with the resulting iron oxide to produce carbon monoxide and
return the oxidized iron to its pure state. Oxygen is added to combust some of the carbon in order
to maintain thermal balance within the reactor vessel. Prior demonstration tests indicate that
these reactions can occur cyclically (separate streams of hydrogen and carbon monoxide) or
simultaneously (a single syngas stream that includes hydrogen and carbon monoxide) within the
reactor, thereby providing inherent operational flexibility depending

Figure 1: HydroMax Molten-Metal Technology

on the end application
(liquid fuels, hydrogen, synthetic natural gas, etc.) for the gas produced. The tin component of
the molten alloy results in a lower alloy melting temperature and serves as a means to remove
sulfur from the system through the creation of tin sulfide. It is important to note that while the
fundamental HydroMax chemistry is analogous to conventional gasification, the chemical
pathway is very much unique.

Unique Advantages and Features

As a result of utilizing this unique chemical pathway for carbon feedstock gasification,
HydroMax offers several key features and advantages compared to conventional gasification
technology:

Feedstock Flexibility: High degree of thermal inertia associated with the molten-metal bath provides the ability to tolerate low and high moisture content feedstock including all coal types, biomass, petroleum coke, and others

Operational Flexibility: Ability to produce separate syngas streams or one single syngas stream results in operational flexibility that can be tailored for specific end-use applications (i.e. liquid fuels)

Innovative Sulfur Removal: Sulfur exits the reactor vessel in the form of tin sulfide (SnS), which is then precipitated out during syngas quench and oxidized to separate the sulfur (captured as a by-product) and tin (re-introduced in the reactor vessel). This approach makes more hydrogen available for use and enables the utilization of high sulfur content feedstocks.

Target Markets

While market opportunities for the HydroMax technology are virtually unlimited, Diversified
Energy is targeting industrial natural gas consumers as the initial market entry point for the
HydroMax approach. The U.S. industrial sector accounts for more than 30% of total natural gas
demand in the country and, according to the U.S. Department of Energy, consists of more than
14,000 users. Further analysis of this market indicates that 2,000 - 5,000 industrial natural gas
users consume between 1,500 and 5,000 MMBtu's per day of natural gas for process heat, which
is an ideal production level for the HydroMax technology. The industrial natural gas
consumption market is attractive for several reasons: 1) The industrial customer realizes value by
stabilizing their cost of fuel gas and eliminating natural gas price volatility risk, 2) Capital
investment for a single industrial-scale HydroMax gasification project is very manageable with
estimated total project costs less than $10 Million, 3) Syngas cleaning and conditioning
requirements are minimized for process heating applications, 4) Commercial HydroMax system
is a reasonable scale-up from previous demonstrations, and 5) Many industrial operations have
captive waste streams that can be utilized as feedstock for the HydroMax technology.

From a competitive perspective, HydroMax is ideally positioned to provide a high-temperature,
small-to-mid scale, economical solution for industrial natural gas replacement opportunities. As
indicated in Figure 2, the gasification marketplace consists of two primary types of technologies:
1) High-temperature, large-scale, entrained flow gasification technologies that produce utilityscale
volumes of syngas for electric power, liquid fuels, and chemicals. High-temperature
gasification technologies are limited by their ability to scale economically for smaller capacity
applications. 2) Low-temperature, small-scale gasification technologies are also available in the
marketplace. However, these systems produce a 'dirty' syngas containing appreciable amounts
of tars and oils as a result of not fully cracking all of the hydrocarbons in the feedstock.
Therefore, low-temperature gasifiers require expensive and complex syngas cleaning equipment
to condition the syngas before being utilized. HydroMax offers a high-temperature and clean
syngas solution that is economical at small scale, therefore making the technology ideally suited
for the industrial process heating marketplace. In fact, Diversified Energy is currently working
with two industrial companies (CertainTeed Gypsum and Evergreen Pulp) under separate funded
R&D projects to design a natural gas replacement solution for their respective operations.

Several highly successful, privately funded, laboratory and bench-scale HydroMax
demonstrations have occurred since 2002. As indicated in Figure 3, beginning with a simple
steam-injection test to demonstrate efficient hydrogen production, test activities have evolved to
include conversion of petroleum coke and municipal solid waste feedstock, steam injection rate
optimization, and successful operation of the 'lock-cycle' (oxidation then reduction) approach.
Each of these accomplishments served to validate the fundamental science, optimize system
operations, and demonstrate the commercial potential of the HydroMax technology.

performance data validated our high-fidelity AspenPlus HydroMax
analytical modeling tool. As a result of the superior performance achieved during these tests,
NETL awarded Diversified Energy a follow-on contract to design and construct a commercial
HydroMax prototype that incorporates all developmental lessons learned and addresses
commercial engineering, scale-up, operational, and implementation aspects of the HydroMax
approach.

On-going Projects

HydroMax is currently being funded by three federal and state-level agencies including the
U.S. Department of Energy, the U.S. Department of Defense, and the State of California. Each
funded project was competitively selected and has clearly defined development and
demonstration goals.

Department of Energy Industrial Gasification Phase II: Funded by the National Energy Technology Laboratory (NETL), this project leverages successful bench-scale tests completed in April 2008 to design, construct, and operate a HydroMax commercial prototype that will gasify Powder River Basin (PRB) coal, Illinois #6 coal, and a blend of PRB coal and biomass. The primary program objective is to design a HydroMax system for industrial natural gas users and provide energy cost reductions and/or stability for the industrial sector. Diversified Energy has partnered with CertainTeed gypsum, a large North American industrial manufacturing company, and will design a commercial HydroMax natural gas replacement system for a CertainTeed operating facility.

State of California Public Interest Energy Research (PIER) Natural Gas (NG) Program: With the goal of reducing natural gas consumption in California, the California Energy Commission awarded a development contract to a team led by Diversified Energy focused on biomass gasification as a source of process heat for industrial facilities. Diversified Energy partnered with Evergreen Pulp Inc., located in Eureka, CA, and will design, build, and install a HydroMax prototype system at the Evergreen Pulp operation, gasify by-product wood fines at the mill, and provide syngas that will be combusted in the Evergreen Pulp thermal oxidizer (see Figure 5). Following the successful completion of the California PIER project, Diversified Energy plans to scale-up the capacity of the HydroMax system to completely eliminate Evergreen Pulp's natural gas consumption.

Figure 4: U.S. Department of Energy Contract Resulted in Significant HydroMax Development Milestones

U.S. Department of Defense Liquid Fuel Production: Diversified Energy has partnered with Velocys Inc. (a leading developer of micro-channel Fischer-Tropsch liquid fuel production technology) to provide the Department of Defense with a modular and transportable fuel production system that can be utilized at forward deployed operating bases. Funded by the Office of the Secretary of Defense, Diversified Energy and Velocys successfully completed a feasibility study for the concept in mid-2008 and are now awaiting award notification for a follow-on contract to demonstrate the approach.

Figure 5: State of California Biomass Gasification Project

Team

As with any development activity, having the right team of people and capabilities is an
essential element of a successful program. Diversified Energy has compiled a world-class team
of strategic partner companies that offer in-depth experience associated with all technologies and
critical areas required to commercialize the HydroMax approach.

Pittsburgh Mineral and Environmental Technology (PMET): PMET is one of the
HydroMax inventors, has been involved in all previous HydroMax demonstration work,
and brings a wealth of experience in areas such as metallurgy, molten-metal operations,
chemical processing, and rapid prototyping.

The Energy and Environmental Research Center (EERC): With more than 50 years of
gasification research and development experience, the EERC provides the HydroMax
development team with gasification expertise, feed system design and implementation, system
design and analysis expertise, refractory design and test capabilities, and demonstration facilities
to conduct operational tests.

CertainTeed Gypsum (subsidiary of St. Gobain): A leading wallboard manufacturing
company, CertainTeed provides the practical, end-user, operational perspective for the
HydroMax technology and is generating integration requirements for a commercial HydroMax
system.

Evergreen Pulp Inc.: Evergreen Pulp will provide the site and infrastructure for the first userintegrated
commercial prototype HydroMax demonstration system at their location in Eureka,
CA.

Velocys Inc.: Velocys is maturing and commercializing a breakthrough Fischer-Tropsch (FT)
conversion technology based on micro-channel chemical processing, which results in an orderof-
magnitude reduction in the size and footprint of FT systems. Diversified Energy is working
closely with Velocys to integrate HydroMax and the Velocys FT system to provide a small,
integrated, and modular liquid fuel production technology.

Path Forward

Diversified Energy is focused on the successful execution of all on-going HydroMax projects,
reducing the risk of commercial implementation, and achieving high performance demonstration
results. We are in the process of establishing key relationships with strategic partners (end-users,
equipment suppliers, technology vendors, etc.), investors, equity partners, and debt providers to
complete all engineering and scale-up tasks and transition the technology to the commercial
marketplace.